How Germany's second-biggest utility is radically changing its business model

Dive Brief:

  • RWE, one of the largest electric utilities in Europe, recently said it will adopt a new business model to survive Europe's energy transition from fossil fuels to energy efficiency and renewables. RWE will become a "project enabler, operator and system integrator of renewables” and "create value by leading the transition to the future energy world," according to a recent strategy paper by the utility.
  • "We have to live with our assets and make the best of them,” RWE said. The utility's transmission and distribution network will become the "platform for the energy market transformation" while its "existing conventional [generation] fleet" will provide backup capacity as demand for "reliable capacity will not decline significantly any time soon."
  • RWE acknowledged it will not be able to lead on distributed generation, which is "the only growth segment in the European power generation market," as the utility's "cost of capital will not be competitive against funding from private and institutional equity investors." 

Dive Insight:

U.S. utilities take note. RWE is no small fishthe utility has 24 million customers and operates over 50,000 MW of capacity. RWE decided to switch strategies after seeing the writing on the wall: three years of plummeting stock prices, an evolution towards increasingly distributed grid, a decrease in electricity demand and, crucially, energy policies that penalized RWE's previous business model. U.S. utilities will surely observe how European utilities manage the energy transition as the U.S. appears ready to do the same.

Recommended Reading

Energy Post: Exclusive report: RWE sheds old business model, embraces energy transition
Greentech Media: Under Threat, Germany’s Second-Biggest Utility Says It Will Create a New ‘Prosumer Business Model’
The Economist: European utilities: How to lose half a trillion euros